Every lawyer within a firm owes a duty of loyalty and confidentiality to each of his clients, regardless of the size or nature of the firm, client or representation. These duties are critical to ensuring that a client trusts his lawyer, seeks legal assistance when needed, and communicates fully and frankly with his lawyer even when it may be embarrassing or legally damaging.
Consistent with this fundamental principle of trust, a lawyer cannot represent a client if the representation will create a conflict with the lawyer’s duty of loyalty to another client.
However, in large, national law firms with hundreds or thousands of current clients and a substantial number of former clients, conflicts between the interests of current, former and prospective clients are inevitable. To maintain a robust practice and operate ethically in this complex environment, counsel must understand:
- How to identify the existence of a conflict between a prospective client and a current or former client;
- The legal and reputational consequences for a firm when it fails to adequately manage a conflict;
- Best practices for addressing conflicts and obtaining informed consent from clients.
As part of a thriving practice, law firms must find a balance between representing many clients, each with evolving and potentially conflicting business and legal interests, and upholding the duty of loyalty owed to those clients. Recognizing what is and is not a conflict of interest is the first step in overcoming that challenge.
The Model Rules published by the American Bar Association and adopted in most states provide guidance for identifying conflicts. These rules advise that conflicts can arise with both current and former clients. A lawyer is prohibited from representing a new client where the representation:
- Is directly adverse to a current client.
- Will be materially limited by the lawyer’s responsibility to a current or former client.
- Is materially adverse to a former client’s interest in the same or a substantially related matter.
Potential conflicts usually are amplified for law firms because a conflict with a current or former client is imputed to a lawyer’s entire firm, unless the conflict is based on either:
- A personal interest of the disqualified lawyer that does not present a significant risk of materially limiting the representation of the client by the remaining lawyers in the firm.
- A representation of a former client that arises out of the lawyer’s association with a prior firm, where the current firm:
- timely screens the disqualified lawyer from participating in the matter and receiving any part of the fee earned from the matter;
- provides detailed written notice to the former client; and
- provides certifications by the firm that it complied with the applicable ethical rules and the firm’s screening procedures.
Consequences of Inadequate Conflicts Practices
The consequences of failing to recognize the existence of a potential conflict of interest or adequately rectify a conflict once it arises include:
- Ethical rule violations;
- Disqualification from the representation;
- Malpractice allegations against the lawyer or law firm; and
- Damage to the business relationship between the lawyer and the affected clients.
Given the fact-specific nature of conflicts, the results of disciplinary or disqualification proceedings or other conflict-related inquiries vary considerably.
Best Practices for Addressing Conflicts
The ever-expanding nature of national and global law firms may make it difficult to avoid conflicts of interest altogether. Where the representation of a new client is adverse to the representation of a current or former client, under certain circumstances, a firm may be able to continue the representation by:
- Obtaining informed consent waiving the conflict;
- Recording important information about the representation in writing;
- Enacting sufficient ethical screens to isolate conflicted lawyers in a firm; and
- Implementing robust systems to detect potential conflicts.
The full version of this article was written by Anne P. Ray and Benjamin T. Halbig of Jenner & Block LLP. You can read the full article in Practical Law – The Journal: Litigation, for free until November 18.
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